Michigan’s affordable housing and abundance of natural environments make it a popular place in which to live and start a business. Yet, as more business owners choose to start their ventures within this state, many may find it challenging to understand the business taxes involved.
Regardless of the size of your business, if you operate a limited liability company (LLC) in Michigan, you must stay up to date on your finances and pay federal, state, and local taxes. Our guide will help you understand which taxes you’ll need to pay for your Michigan LLC.
Recommended: Schedule a free consultation with an accountant to stay on top of your taxes.
Michigan LLC Taxes Owed
LLCs benefit from pass-through taxation, which means the business’s profits pass through to its members’ individual tax returns. As a result, your LLC itself doesn’t pay taxes to the federal government or the state of Michigan. Instead, LLC owners must pay taxes on their portion of the income generated by the LLC.
In Michigan, LLC owners can expect to pay the following taxes:
Regardless of where your business is located, if you have an LLC within the United States, you will have to pay federal income taxes and federal self-employment taxes. These taxes are reported on your Form 1040.
Federal Self-Employment Taxes
It doesn’t matter if your LLC is a single-member LLC or a multi-member LLC; all LLC members must pay self-employment taxes on their share of the LLC’s profits. The self-employment tax rate is 15.3%.
Federal Income Taxes
Your federal income taxes will depend on your tax bracket, and the cutoffs for individual tax brackets, as well as the percent owed, will change each year.
Michigan State Taxes
Every state has its own regulations and rules that dictate how it taxes individuals and businesses. Below are the most relevant state-level taxes for LLCs in Michigan.
Michigan Income Taxes
The income tax rate in Michigan is 4.25%. This is quite low when compared to the rest of the country. In fact, of the states that charge an income tax, Michigan is one of the 10 states with the lowest rates.
Michigan Sales and Use Tax
Michigan’s state sales tax rate is a flat 6%. This applies to relevant purchases of goods and services within the state. Because Michigan has no local sales taxes in addition to its state sales tax, 6% is the sales tax rate no matter where you purchase or sell goods.
Register for a Michigan Sales Tax License
If your business sells taxable goods or services, you must collect sales tax and obtain a sales tax license from the Michigan Department of Treasury.
Additional State Taxes
The Michigan Department of Treasury oversees the collection of various state-specific taxes businesses may have to pay, depending on their location, industry, and number of employees. A few examples of these additional taxes include:
- Heavy Equipment Owners Excise Tax
- Marijuana Retailers Excise Tax
- Motor Fuel Tax
- Tobacco Tax
For more details, visit the Business Taxes page on the Michigan Department of Treasury website.
Michigan Local Taxes
The local laws and ordinances in Ann Arbor may differ greatly from those in Grand Rapids. Regardless of where you live in Michigan, check with your local jurisdiction to ensure your business obtains the proper local permits and follows any local regulations that may impact its operations.
Michigan LLC Compliance
All LLCs in Michigan must obey state and local laws in order to maintain their good standing. While LLCs technically don’t file taxes with the state, Michigan LLCs must still file an annual report each year.
Michigan LLC Annual Report
All Michigan LLCs must file an annual report with the Michigan Department of Licensing and Regulatory Affairs (LARA). Even if your business hasn’t experienced any changes in the last 12 months, you’ll still need to file the report online or by mail each year and pay the $25 filing fee. The only exception is that military veterans can file for free.
Annual reports are due on February 15 every year. If you form your business between October 1 and December 31, however, your first annual report will be due on February 15 in two years.
Michigan offers a two-year grace period on filing so it won’t penalize you or charge you any late fees if you file within two years of the due date. If you still fail to file your LLC’s annual report after the two-year grace period passes, your business will lose its good standing and face penalties. The only way to restore your LLC’s standing is to file a Certificate of Restoration. Filing this certificate costs $50, and you’ll need to pay a late fee of $25 for each past-due annual report.
For more information, check out our Michigan LLC Annual Report guide.
LLC taxes are complex. While our guide can provide you with important information, we recommend you schedule a free consultation with an accountant to ensure you handle your business taxes correctly.